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Darden Restaurants
Darden's Olive Garden remains one of casual dining's top performers.

Surging Darden to Invest $20 Million in Workforce

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The casual dining leader raised its financial outlook for 2018.
By Danny Klein January 2018 Chain Restaurants

Darden’s momentum continues to accelerate in 2018, with the company announcing Monday that it plans to invest about $20 million “in initiatives directly benefitting our workforce.” This came with news the casual dining giant was increasing its financial outlook for fiscal 2018 from $4.70–$4.78 for adjusted diluted earnings per share from its previous guidance of $4.45–$4.53. Darden’s stock jumped 1.7 percent in premarket trading as it approached record highs. The company’s stock is up 23 percent over the past three months and was trading at $99.31 to start the week.

“One of the best investments we can make is in our people," CEO Gene Lee said in a statement. "During the remainder of fiscal 2018, we will invest approximately $20 million in initiatives directly benefitting our workforce. This investment will strengthen one of our most important competitive advantages—a results-oriented culture—as we continue to improve on the guest experience, and position Darden and our brands for long-term success."

Darden, which operates Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, Eddie V’s, Seasons 52, The Capital Grille, and Bahama Breeze, also predicated financial impact from the Tax Cuts and Jobs Act. Enacted on December 22, Darden said the act, based upon preliminary analysis, will help the company record non-cash net tax benefits of about $70 million, or about 56 cents per diluted share, related to the revaluation of these deferred tax items. Darden said during the third quarter, which ends February 25, the company will revalue its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on these deferred amounts.

More so, Darden said, excluding the deferred tax revaluation benefit, the company believes the impact of the lower corporate tax rates will reduce its fiscal 2018 effective tax rate by 600 basis points. Darden added that the “anticipated resolution of other tax maters, unrelated to the Tax Act” will reduce the company’s effective tax rate by an additional 100 basis points, resulting in an effective tax rate of about 18 percent for fiscal 2018.

Darden didn’t change its same-store sales growth projections, which remain at 2 percent company-wide. New openings also stayed put at about 40 and sales growth at 13 percent.

The company was recently ranked No. 85 in Glassdoor’s Best places to Work in 2018—the top full-service chain on the list and Darden’s debut in the rankings.

Lee said in a conference call after Darden’s second-quarter review that its employees are part of every decision made by the company.

“We have a filter that we run every decision through. And the first question we ask is, how does our team member win if we make a decision? The second is, how does our guest win if we make a decision? We believe one of our four competitive advantages is our culture. Even as the employee market has tightened, our retention rates have not moved it all; they actually improved a little bit,” Lee said. “We’ll continue to invest in our team members. We believe we have great training programs. Fifty percent of our management comes from our team member ranks, which we believe are offering growth opportunities to our team members. And I think we’re doing the right thing. We’re not trying to manage to win these awards; we’re just doing the right thing for our team members every single day and then if we get an award that’s great. But I think you can see it in our results: We’re doing a good job taken care of our guests and we take care of our guests, we win.”

Darden is coming off an impressive second quarter that showed continued progress in its “back-to-basics” operating philosophy installed about three years ago. Darden’s total sales boomed 14.6 percent, year-over-year, to $1.88 billion. Overall same-store sales from its seven brands (not counting recently purchased Cheddar’s Scratch Kitchen) rose 3.1 percent. Same-store sales increased 3.8 percent at 500-unit LongHorn, marking the 19th consecutive quarter of same-store sales growth. They were up 3 percent at Olive Garden, giving the 849-unit chain its 13th straight quarter with positive comps. The Capital Grille reported 3.8 percent same-store sales growth. Eddie V’s comps grew 6.8 percent; Yard House reported a 2 percent increase; and Bahama Breeze’s same-store sales were up 2.5 percent. Seasons 52 had a 0.5 percent decline. Sales declined 2 percent at Cheddar’s, which has spent just two quarters under Darden’s umbrella and is still being integrated across the system, the company said in December.